Buy Lloyds Metals and Energy Ltd for the Target Rs.2,075 by Choice Institutional Equities
Business Overview: LLOYDSME is a leading iron ore and steel producer, anchored by its Surjagarh mine. Commercial mining scaled up in 2021 after Thriveni Earthmovers was appointed as Mine Developer and Operator and became a co-promoter with 17.8% stake, strengthening execution and growth. The company is expanding iron ore capacity to 26 MT, pellet capacity to 12 MT, DRI to 0.7 MT, adding a 1.2 MT wire-rod plant and plans for a 3 MT HRC facility, backed by captive and renewable power integration.
Could LLOYDSME command a premium valuation through improving earnings quality and integration benefits?
LLOYDSME is entering a structurally driven growth phase, supported by a sharp ramp-up in iron ore volumes, expansion of pellet capacity and a rising contribution from value-added products. We expect the company to deliver a strong Revenue/EBITDA/PAT CAGR of ~26%/29.5%/25.6% over FY26–FY29E, driven by operating leverage and margin-accretive improvements in the product mix. Importantly, this growth is backed by long-term structural advantages — including captive resources, integrated logistics and downstream integration — rather than purely cyclical factors, enhancing both, earnings quality and sustainability. With improving profitability and stronger earnings visibility, LLOYDSME is well-positioned to deliver consistent earnings compounding, supporting a case for a premium valuation multiple relative to traditional metal peers.
How does Thriveni Mining strengthen LLOYDSME’s margin profile and earnings visibility through its assetbacked MDO business model?
Thriveni adds a structural third margin lever to LLOYDSME, providing asset-backed, annuity-driven revenue visibility in an otherwise-cyclical mining industry. Backed by a projected INR 600+ Bn asset base (consolidated) by FY28E, the business model is utilisation-led, with revenue growth driven by higher throughput rather than commodity prices. As asset turnover improves from ~0.7x to ~1.0x, revenue productivity could rise by 40–45% without significant incremental capex, supporting ~INR 102.3 Bn revenue (Thriveni) over FY26–FY28E. Furthermore, long-tenure MDO contracts, throughput-linked cost structure and operating leverage provide a pathway for stable-to-improving margin and stronger earnings visibility.
Is there any upside optionality in LLOYDSME beyond base-case valuation?
The Copper Cathode JV represents a hidden optionality within LLOYDSME, which is not factored into numbers due to early-stage execution risk. However, supported by Congo-linked resource access and active promoterled on-ground supervision, the project offers meaningful long-term upside and could become value-accretive upon successful commissioning and scale-up.
Outlook: We maintain our BUY rating on Lloyds Metals and Energy Ltd (LLOYDSME) with a revised SoTP-based Target Price of INR 2,075. LLYODSME is structurally shifting from a pure mining play to a higher-margin, integrated metals platform.
Risks:
• Possible project execution delay, probable raw material volatility, elevated contingent liability, pledged shares and regulatory and mining risk.
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